Free Trade Agreement Updates - Changes to the WTO GPA and KORUS FTA

by Sheppard Mullin Richter & Hampton LLP
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[author: David Gallacher]

In December 2011 the World Trade Organization reached an agreement in principle to implement “historic revisions” to the World Trade Organization Government Procurement Agreement (WTO GPA), a trade agreement covering the public procurement markets in more than 40 WTO member states (including the United States). On March 30, 2012, the WTO GPA formally adopted these revisions. While the updates have been formally agreed upon, it may take months until two-thirds of the signatory countries ratify the agreement and make the changes official. Nevertheless, the international community appears to be moving forward with plans to implement, pending ratification.

Separately, under the recently ratified the U.S./South Korea (“KORUS”) Free Trade Agreement (“FTA”), the U.S. Government has waived South Korea's obligations to follow the WTO GPA, to which South Korea has been a signatory since January 1997. KORUS offers greater benefits to U.S. companies in the Korean procurement space compared to the WTO GPA, and where those benefits apply KORUS will, of course, take precedence over the WTO GPA. Toward this end, numerous interim rules have recently been issued to update the Federal Acquisition Regulation, recognizing the new KORUS FTA and reducing the applicable dollar thresholds for purchasing supplies and services from South Korean sources.

This blog posting provides a brief summary of some of these new changes to the WTO GPA and the KORUS FTA.

Updates to the WTO GPA

Generally, the updated WTO GPA changes the prior Agreement in two major ways – through expanded scope and improved flexibility.

Expanded Scope. The Government estimates that the expanded scope will improve access to approximately $80-$100 billion in U.S. and foreign procurement markets. In this regard, the new Agreement:

  • Expands coverage to include approximately twelve U.S. executive agencies that were not previously covered by the Agreement (e.g., the Social Security Administration, the Advisory Council on Historic Preservation, the Court Service and Offender Supervision Agency for the District of Colombia, the Federal Energy Regulatory Commission, the Federal Labor Relations Authority, the Millennium Challenge Corporation, the National Assessment Governing Board, the National Endowment for the Arts, the National Endowment for the Humanities, the U.S. Marine Mammal Commission, and the United States Access Board);
  • Allows access to additional central-government entities (estimated at 150-200) in a number of foreign countries such as European Union nations, Aruba, Hong Kong, Israel, Liechtenstein, South Korea, and Switzerland;
  • Enhances coverage for sub-central entities (such as state, local, regional or provincial governments), particularly those located in Canada, which have historically been exempted from the GPA (this follows an agreement reached between the U.S. and Canada in February 2010 that liberalized access to sub-central entities that were not previously covered by the GPA);
  • Offers full coverage for construction contracts;
  • Expands the scope of specific categories of products that are covered by the GPA; and
  • Gives flexibility for countries further to reduce the applicable dollar thresholds (currently set at $202,000 for purchases of supplies/services by the U.S. Government).

Improved Flexibility. The new Agreement also seeks to provide more flexible implementation processes and tools that can be more easily understood and that will facilitate better procurement practices across the globe. In this regard, the new Agreement:

  • Updates the text of the Agreement, purportedly facilitating a “plain reading” of its terms;
  • Provides procedures for increased transparency among the member countries to verify compliance with the terms of the GPA;
  • Permits increased flexibility to use electronic tools in order to conduct public procurements more efficiently and also to monitor compliance with the GPA obligations;
  • Allows countries greater flexibility in procuring commercial products;
  • Authorizes additional compliance tools to support countries trying to move to a single, universal standard for conducting public procurements;
  • Allows small countries/developing economies more flexibility in structuring their individual public procurement programs;
  • Creates new, future “Work Programs” that the signatories hope to investigate to allow for improved administration of the GPA, including new ways to harmonize data and implement environmentally-friendly policies; and
  • Encourages a framework that will be more welcoming for new signatories (including, for example, China).

Updates to the FAR to Implement the KORUS FTA

Beyond the updates to the WTO GPA, there have been additional updates to the regulations to implement the newly implemented U.S./South Korea FTA. This FTA was originally signed in June 2007, but it was not fully ratified by the Senate until October 2011. See Pub. L. No. 112-41. The FTA includes many different provisions, but (for purposes of this blog), there are at least two key points relating to public procurements.

First, the U.S. Government has recognized that the new FTA is generally more advantageous for U.S. businesses than the WTO GPA (to which South Korea has been a signatory since January 1997). On March 2, 2012, the U.S. Government waived South Korea's obligations under the WTO GPA because (according to the U.S. Trade Representative) the new FTA generally provides greater and more comprehensive procurement benefits for U.S. companies than the corresponding obligations under the GPA. See 77 Fed. Reg. 12904.

Second, on March 7, 2012 the FAR Council issued an interim rule updating FAR Part 25 and implementing the new agreement. See 77 Fed. Reg. 13952. Perhaps most importantly for companies selling to the U.S. Government, the interim rule lowered the applicable dollar thresholds for purchases of supplies and services, but left unchanged the dollar threshold for construction contracts. The new thresholds are as follows:

 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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